The Bailout

I’ve been trying to reserve my opinion on the looming financial bailout until I was a little more confident I had my thoughts well sorted out (a cardinal sin I know, but I didn’t want to be one of those people who are going to have something they said last week follow them around for the next 5-10 years) and, by now, I’m pretty confident that I don’t really like it.

For starters, it seems that no one is really all that fond of it. Krugman, Reich, Furman/Goolsbee (who I assume crafted Obama’s position), and a bunch of others aren’t keen on the idea, and there are some pretty egregious provisions (like the explicit removal of any oversight) that have to go. On the other hand, it’s entirely possible the Bernanke and Paulson have some knowledge of facts others don’t have, and are working from a position of more information than the rest of us, so I am sort of inclined to give them at least some benefit of the doubt, especially Bernanke, who is one of the foremost experts on central banking in the world and who basically everyone agrees is the best choice to run the Fed. Which isn’t nothing.

On the other hand, I keep coming back to a question of why we’re simply taking on the worst of Wall Street’s bad debt. It seems a much better way to keep the system afloat would have been a similarly massive program to underwrite the restructuring of the subprime mortages that started the mess. This would keep capital flowing to the lenders as borrowers were able to make their payments, and have the added benefit of keeping people in their homes. The government could pick up the difference, or even let the banks operate at something of a loss, and this would be both more fair, and probably better for the long run health of the economy. As it is now, we’re still going to have lots of people foreclosed on, and by extension lots of empty houses up for sale no one wants to buy wasting valuable land resources.

But maybe that’s just me.